- Mexico: May inflation surprises higher driven by non-core components
In May, inflation rose to 4.42% y/y from 3.93% (vs. 4.37% consensus in the Citi Survey), with core inflation standing at 4.06% from 3.93% (vs. 4.02% consensus). Within core inflation, goods increased by 3.67% (3.38% previously), while services slowed to 4.49% (4.56% previously). On the other hand, non-core inflation rose to 5.34% (3.76% previously), with agricultural products accelerating to 6.76% (4.13% previously) as fruits and vegetables ended a four-month negative y/y streak with a 0.04% rise (-2.45% previously) while meat and eggs prices soared 10.85% (8.25% previously).
On a monthly comparison basis, headline inflation was 0.28% (0.33% previously, 0.23% consensus), core prices rose 0.35% (0.49% previously, 0.26% consensus), and non-core inflation stood at 0.23% (-0.21% previously). In the coming months, the outlook remains uncertain with an upward bias; it is worth noting that inflation in the second half of the month stood at 4.62% y/y, marking two consecutive fortnights above 4.0%.
We believe Banxico will cut its benchmark rate by 50 basis points to 8.00% at its June 26th meeting, as the recent inflation spike appears driven by volatile components and weaker growth expectations. However, persistent inflationary pressures may lead to a split decision and prompt a more cautious stance over the second half of the year, with any further easing likely to proceed gradually.
—Rodolfo Mitchell, Brian Pérez & Miguel Saldaña
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